© 2011 IFRS Foundation 1 The IFRS for SMEs Topic 1.7 Quiz and Discussion Section 23 Revenue

© 2011 IFRS Foundation 2 This PowerPoint presentation was prepared by IFRS Foundation education staff as a convenience for others. It has not been approved by the IASB. The IFRS Foundation allows individuals and organisations to use this presentation to conduct training on the IFRS for SMEs. However, if you make any changes to the PowerPoint presentation, your changes should be clearly identifiable as not part of the presentation prepared by the IFRS Foundation education staff and the copyright notice must be removed from every amended page. This presentation may be modified from time to time. The latest version may be downloaded from: The accounting requirements applicable to small and medium ‑ sized entities (SMEs) are set out in the International Financial Reporting Standard (IFRS) for SMEs, which was issued by the IASB in July The IFRS Foundation, the authors, the presenters and the publishers do not accept responsibility for loss caused to any person who acts or refrains from acting in reliance on the material in this PowerPoint presentation, whether such loss is caused by negligence or otherwise.

© 2011 IFRS Foundation 3 Questions about Section 23 Revenue

© 2011 IFRS Foundation 4 Section 23 – Discussion questions Question 1: Which of the following are not covered by Section 23 Revenue? a.Revenue from lease agreements? b.Changes in FV of financial assets and financial liabilities or their disposal? c.Change in FV of biological assets relating to agricultural activity? d.All of the above?

© 2011 IFRS Foundation 5 Section 23 – Discussion questions Question 2: Goods with list price of 1,000 sold to customer on normal credit terms. Customer pays 690 in full settlement. The 690 = 1,000 list, less 200 trade discount, less 100 volume rebate, less 10 prompt payment discount. Of the 690, 50 is sales tax to be remitted to government. How much revenue should be recognised? a. 640? b. 1,000? c. 700? d. 690?

© 2011 IFRS Foundation 6 Section 23 – Discussion questions Question 3: Percentage of completion must be used to recognise revenue from: a.rendering of services and construction contracts? b.rendering of services only when the outcome can be estimated reliably? c.construction contracts only when the outcome can be estimated reliably? d.both b and c?

© 2011 IFRS Foundation 7 Section 23 – Discussion questions Question 4: Car dealer sales promotion – free servicing and 2-years zero interest credit. Recognise revenue separately for: a.entirely sale of goods? b.sale of goods and rendering of maintenance services? c.sale of goods, rendering of services, and a financing element (interest) related to the deferred payment?

© 2011 IFRS Foundation 8 Section 23 – Discussion questions Question 5: A sells goods to B for 950 on 1/1/20X1, and incurs selling cost of 20 at the same time. B negotiates one year interest- free credit (payment due 31/12/20X1). If B had borrowed to pay up front, interest rate = 10%. How much revenue from sale of goods does A recognise at 1/1/20X1? a. 950? b. 864? c. 970 d. 930?

© 2011 IFRS Foundation 9 Section 23 – Discussion questions Question 6: Fixed price construction contract 1,000,000. Contractor incurs costs of 10,000, 890,000, and 200,000 in Years 1, 2, 3. At end of Year 1 outcome cannot be estimated reliably, but 10,000 costs are recoverable. At end of Year 2, can make a reliable estimate of 200,000 future costs to complete. How much revenue and cost should contractor recognise in Year 2? See next slide...

© 2011 IFRS Foundation 10 Section 23 – Discussion questions Question 6, continued: How much revenue and cost should contractor recognise in Year 2? a.Revenue 818,182 and costs 900,000? b.Revenue 808,182 and costs 890,000? c.Revenue 808,182 and costs 908,182? d.Revenue 808,182 and costs 900,000?

© 2011 IFRS Foundation 11 Section 23 – Discussion questions Question 7: Fixed price construction contract 1,000,000. Contractor incurs costs of 200,000, 400,000, and 100,000 in Years 1, 2, 3. At end of Year 1 reliable estimate of future cost was 400,000. At end of Year 2 estimated future costs were 150,000. Contract completed in Year 3. How much revenue should contractor recognise in Years 1, 2, 3? See next slide...

© 2011 IFRS Foundation 12 Section 23 – Discussion questions Question 7, continued: How much revenue should contractor recognise in Years 1, 2, and 3? ChoiceYear 1Year 2Year 3 (a)333,333466,667200,000 (b)1,000,00000 (c)001,000,000 (d)333,333

© 2011 IFRS Foundation 13 Questions about Sections 3 to 8 Financial Statement Presentation. Questions are based on the illustrative financial statements published along with the IFRS for SMEs (in separate printed booklet).

© 2011 IFRS Foundation 14 Financial Statement Presentation Case Question (a): Consolidated statement of comprehensive income and retained earnings Could the group present two statements (separate consolidated statement of comprehensive income and consolidated statement of changes in equity) instead of presenting a single consolidated statement of income and retained earnings?

© 2011 IFRS Foundation 15 Financial Statement Presentation Case Question (b): Consolidated statement of comprehensive income and retained earnings How would the presentation of the consolidated statement of income and retained earnings change if the XYZ Group had a discontinued operation in the year ended 31 December 20X2?

© 2011 IFRS Foundation 16 Financial Statement Presentation Case Question (c):Consolidated statement of comprehensive income and retained earnings How would the presentation of the consolidated statement of income and retained earnings change if the XYZ Group had a partly owned subsidiary?

© 2011 IFRS Foundation 17 Financial Statement Presentation Case Question (d):Consolidated statement of comprehensive income and retained earnings Could the XYZ Group choose to present an analysis of expenses by function instead of an analysis of expenses by nature? What are examples of expenses by function?

© 2011 IFRS Foundation 18 Financial Statement Presentation Case Question (e):Consolidated statement of comprehensive income and retained earnings Is the group required to disclose this line item ‘Profit before tax’?

© 2011 IFRS Foundation 19 Financial Statement Presentation Case Question (f): Consolidated statement of financial position Could this statement have been called ‘Balance Sheet’ instead of ‘Statement of Financial Position’? What about ‘Statement of Asset and Liability Values’?

© 2011 IFRS Foundation 20 Financial Statement Presentation Case Question (g):Consolidated statement of financial position Does the IFRS for SMEs prohibit presenting the statement of financial position before the statement of income and retained earnings?

© 2011 IFRS Foundation 21 Financial Statement Presentation Case Question (h):Consolidated statement of financial position Does the IFRS for SMEs require a statement of financial position at the beginning of the earliest comparative period?

© 2011 IFRS Foundation 22 Financial Statement Presentation Case Question (i): Consolidated statement of financial position Instead of presenting its current assets / liabilities separately from its non-current assets / liabilities, could the XYZ Group choose to present its assets and liabilities in order of their liquidity (no current / non-current split)?

© 2011 IFRS Foundation 23 Financial Statement Presentation Case Question (j): Consolidated statement of financial position When an entity presents its assets and liabilities in order of their liquidity, is that order ascending or descending?

© 2011 IFRS Foundation 24 Financial Statement Presentation Case Question (k): Consolidated statement of cash flows This statement has a sub-heading “Cash flow included in investing activities” within “Cash flows from operating activities”. Why is this item there?

© 2011 IFRS Foundation 25 Financial Statement Presentation Case Question (l): Consolidated statement of cash flows Does the IFRS for SMEs require the XYZ Group to separately disclose the amount of finance costs paid in cash?

© 2011 IFRS Foundation 26 Financial Statement Presentation Case Question (m):Consolidated statement of cash flows Does the IFRS for SMEs require the group to separately disclose the amount of income taxes paid in cash?

© 2011 IFRS Foundation 27 Financial Statement Presentation Case Question (n): Note 2 Accounting Policies If the presentation currency is different from the functional currency, what additional information, if any, would the XYZ Group disclose?

© 2011 IFRS Foundation 28 Financial Statement Presentation Case Question (o):Note 2 Accounting Policies – Investments in Associates What other measurement bases, if any, could the XYZ Group adopt as its accounting policy for investments in associates?

© 2011 IFRS Foundation 29 Financial Statement Presentation Case Question (p):Note 2 Accounting Policies – Borrowing costs Could the XYZ Group change its accounting policy for borrowing costs such that borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset (ie can the group account for borrowing costs in accordance with the requirements of IAS 23 Borrowing Costs of full IFRSs)?

© 2011 IFRS Foundation 30 Financial Statement Presentation Case Question (q): Note 2 Accounting Policies – Intangible assets If the XYZ Group had purchased a trademark whose useful life management considers to be indefinite, would the group still account for the trademark at cost less accumulated depreciation and any accumulated impairment losses?

© 2011 IFRS Foundation 31 Financial Statement Presentation Case Question (r): Note 2 Accounting Policies – Leases Because of some guarantees made in a lease agreement, the lessee’s management found it difficult to classify the lease as operating or financing. In the end, they concluded it is operating. Is any special disclosure required?

© 2011 IFRS Foundation 32 Financial Statement Presentation Case Question (s): Note 2 Accounting Policies – Employee benefits – long-service payment Could XYZ Group have chosen another method to measure its defined benefit obligation rather than the projected unit credit method?

© 2011 IFRS Foundation 33 Financial Statement Presentation Case Question (t): Note 6 Gain on sale of equipment XYZ Group has never before disposed of any PP&E. Could XYZ present this gain as a separate line item in the consolidated statement of income and retained earnings described as ‘Extraordinary item – Gain on Sale of Equipment’?

© 2011 IFRS Foundation 34 Financial Statement Presentation Case Question (u): Note 10 Trade and other receivables Instead of presenting a single line ‘Trade and other receivables’ in the balance sheet and then disclosing ‘Trade debtors’ and ‘Prepayments’ separately in the notes, could XYZ present these two items as separate line items in the balance sheet?

© 2011 IFRS Foundation 35 Financial Statement Presentation Case Question (v): Note 15 Deferred tax Note 15 discloses that XYZ has both deferred tax assets and deferred tax liabilities. Yet the statement of financial position shows only a deferred tax asset. Why?

© 2011 IFRS Foundation 36 Financial Statement Presentation Case Question (w): Note 15 Deferred tax If a material amount of the deferred tax asset is expected to be received in cash in 20X3, would the XYZ Group present the amount to be received in 20X3 as a current asset in its consolidated statement of financial position at 31 December 20X2?

© 2011 IFRS Foundation 37 Financial Statement Presentation Case Question (x): Note 16 Bank overdraft and loan Instead of presenting cash (current asset) separately from bank overdraft (current liability) could XYZ choose to present the net amount (eg 20X2: 54,900) as a current liability ‘Cash and cash equivalents’ in its consolidated statement of financial position (ie in the same way that it is presented in the consolidated statement of cash flows)?

© 2011 IFRS Foundation 38 Financial Statement Presentation Case Question (y): Note 18 Provision for warranty obligations If the warranty was for a longer period (eg 3 years) what additional line item, if any, would you expect to see in the disclosure about the changes in the provision for the period?

© 2011 IFRS Foundation 39 Financial Statement Presentation Case Question (z): Note 25 Events after end of reporting period The 16,000 reimbursement from the insurance company was received in cash before the statements were approved on 10 March X3. So it is ‘virtually certain’. Why is it not shown as a receivable in the statement of financial position?